Are we undermeasuring U.S. savings?

Savings are hard to measure; the government’s Bureau of Economic Analysis almost surely understates the true figure…

Perhaps the biggest problem with the way the government measures
savings is its failure to take account of changing asset values like
rising home prices. If we looked at the balance sheets of American
families, instead of just subtracting consumption from income, we would
find a more favorable picture, despite some short-term volatility.

a speech last fall, Roger W. Ferguson Jr., vice chairman of the Federal
Reserve, expressed concern that households weren’t saving more, but he
acknowledged that the ratio of household net worth to disposable income
"has been essentially trendless over the past two decades," adding in a
footnote that "this alternative concept of the personal saving rate
has, in fact, shown a slight positive trend since the early 1950’s."

treatment of capital gains in the widely cited saving figure leads to a
number of problems. Consider pensions. Employer contributions are
counted as personal income, but later – and larger – payouts to
retirees register as consumption, while the capital appreciation that
substantially finances these payouts registers nowhere.

according to a Dartmouth economist, Steven F. Venti, who contended in a
2003 report written with two Dartmouth colleagues, Annamaria Lusardi
and Jonathan Skinner, that the treatment of pensions had played a large
role in dragging down savings to record levels, "accounting for over 40
percent of the total decline in the personal saving rate from 1988
through the turn of the century."

Other measurement issues also
play a role. In a paper on alternative measures of personal saving,
Marshall B. Reinsdorf, a research economist at the Bureau of Economic
Analysis, asserts that adjusting the calculation for several such
factors, including the treatment of spending on durable goods and the
effect of inflation on interest rates, can account for much of the
apparent decline in personal saving in the 1990’s.

Daniel Akst at The New York Times offers more; I’ve added the links in the above quotation.

Note also that the U.S. spends more on education than most countries, but this is counted as consumption not savings (admittedly we wish to measure outputs, not inputs, but U.S. higher education is excellent).  R&D investments do not count toward national savings figures either; on these facts see the Michael Mandel article in 17 January Business Week.


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